The cooperative business model boasts a number of advantages over other types.

BUSINESS TRACK: Cooperatives have proven successful

Often seen as alternative, yet with a successful history locally and in Canada, this business model is gaining mainstream acceptance

By John Laing

ClickMedia Works Inc.

 

This was the year of cooperatives. Often seen as alternative, yet with a successful history locally and in Canada, this business model is gaining mainstream acceptance worldwide as the economy continues to struggle.

Better control of operating costs, increased flexibility and efficiency, plus higher community profile and involvement are just three reasons why cooperative businesses worldwide survived the global financial meltdown better than their entrepreneurial counterparts. Even more impressive, according to the International Cooperative Alliance (ICA) they managed healthy growth as well.

“This new data demonstrates that not only do cooperatives have significant scale, but that this scale is sustainable even in the face of difficult global economic conditions,” said Charles Gould, ICA Director General. “More than this, with $2 trillion USD in annual revenue among the 300 largest cooperatives alone, this is a sector that is no side-player, but a major global economic force.”

For small business owners and operators trying to manage through uncertain and difficult times, awareness of the cooperative business model could be of critical importance. Set against a business model where maximum return to shareholders trumps almost all other considerations, the governance structure of cooperatives is significantly more democratic, inclusive and transparent. While acknowledging that profit is essential to survival, cooperatives place higher value on service to members, including environmental and social sustainability, ahead of profit. In addition, they return surplus revenues to their members, not according to numbers of shares held, but proportionate to member use of their products or services.

Five basic categories of cooperatives allow the model to fit almost every business need. The best known of these are consumer-owned (credit unions, food co-ops, housing co-ops) and producer-owned (agricultural co-ops, craft producer co-ops). There are purchasing co-ops (Ace Hardware is an example) where small independent businesses band together to enhance purchasing power and lower operating costs. Finally, there are examples of multi-stakeholder cooperatives where conflicting needs are resolved in order to achieve a higher purpose, such as to reduce duplication of services and create efficiencies.

Creating business hubs can provide support, growth and scale that benefits all business stakeholders. Capital and the Debt Trap reports that “Cooperatives tend to have a longer life than other types of enterprise, and thus a higher level of entrepreneurial sustainability.” Studies have shown that the rate of survival of cooperatives after three years was 75 per cent, whereas it was only 48 per cent for all enterprises, and after 10 years, 44 per cent of cooperatives were still in operation, whereas the ratio was only 20 per cent for all enterprises.

ICA president Dame Pauline Green addressed the first ever International Summit of Cooperatives in Quebec City, an event that attracted more than 2,800 delegates from 96 countries around the world. She put her finger squarely on the awareness problem facing cooperatives. “We represent over 1 billion co-op members around the world. Cooperatives employ over 100 million people, and in aggregate they form the world’s ninth largest economy.”

The cooperative business model has caught the attention of major accounting and financial consulting firms worldwide. McKinsey & Company, KPMG, Deloitte and PWC all contributed to the Summit program. Operating on the principles of honesty, transparency, democracy and concern for community, including environmental and social issues, cooperatives continue to prove their flexibility and adaptability to meet the economic challenges of our modern world as well as the interest of many young entrepreneurs. Once viewed as being on the fringe of mainstream business, the cooperative model has matured to be worthy of attention and consideration of small business owners looking to grow their business.

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